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India 2015: MARKET CHARACTERISTICS | E-commerce

Internet access, investment drive exponential growth

Indian e-commerce totaled $13.5 billion at the end of December 2014, according to the Internet and Mobile Association of India (IAMAI) and the Indian Market Research Bureau (IMRB).

Researchers expect e-commerce to grow 33 percent during 2015, having grown over 50 percent during 2014. IAMAI predicts that this pace of growth will continue over the next few years, and Indian e-commerce consumption will reach $75 billion by 2018.

The factors driving the torrid growth rate of Indian e-commerce include expanding Internet access and rapid adoption of technology, especially mobile devices. The rise in business confidence, which followed the election of the current government, also attracted greater investment in e-commerce.

Apart from the traditional online formats of retail and lifestyle, newer online business segments such as classifieds, real estate, grocery and healthcare received funding. Two domestic online shopping sites – Flipkart and Snapdeal – especially benefited from increased investment and the growth of e-commerce, although Alibaba, Amazon and eBay also are present in the market.

Currently, e-commerce represents a relatively small portion of India’s roughly $600 billion in total retail sales. But that proportion is expected to rise rapidly and retail will surpass online travel during 2016 as the single greatest e-commerce revenue generator, IAMAI predicts.

The Indian government’s Digital India project and the modernization of India Post are expected to drive e-commerce growth too, as they expand Internet and broadband to remote parts the country, enabling people to connect socially and commercially with their mobile devices.

The potential is enormous, as only 16 percent of India’s population was online in 2014, and only a small proportion of that group, 14 percent or about 28 million people, were online buyers, according to IAMAI. E-commerce is increasingly attracting customers from Tier 2 and 3 cities, where people have limited access to brands but high aspirations. These cities have experienced 30-to-50 percent increases in transactions, according to some estimates.

Increased smartphone use is expanding Internet access. In 2013, only 5 percent of e-commerce transactions were made with a mobile device. Today, more than 13 percent of all e-commerce transactions happen via mobile. However, most mobile transactions so far are for entertainment, such as booking movie tickets and music downloads. This trend is expected to change quickly with more and more merchandise being ordered online.